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Tuesday, June 17, 2014

Evaluating Low-Carbon Energy Alternatives

Consider five low-carbon energy sources: solar, wind, hydroelectric, nuclear, and natural gas. Which ones offer is the most cost-effective way to reduce carbon emissions? Charles R. Frank, Jr., ranks natural gas first, and wind and solar last in "The Net Benefits of Low and No-Carbon Electricity Technologies," written as Working Paper 73 for Global Economy & Development at the Brookings Institution (May 2014). Frank summarizes:

[A]ssuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less—nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar. This is the case because solar and wind facilities suffer from a very high capacity cost per megawatt, very low capacity factors and low reliability, which result in low avoided emissions and low avoided energy cost per dollar invested.

Frank's approach takes off from here: "The benefits of a new electricity project are its avoided carbon dioxide emissions, avoided energy costs [that is, cost of fuel] and avoided capacity costs." For a summary of Frank's approach, consider this table, which shows the benefits and costs in these three categories. Notice that that the benefits and costs are measured per megawatt of electricity generated, and the changes are expresses relative to producing a megawatt less by burning coal.

The key factor in these calculations is that wind and solar run at much lower capacity than do hydro, nuclear, and combined cycle natural gas. ("Combined cycle" means that the power plant "utilizes both a gas turbine and a steam turbine to produce electricity. The waste heat from the gas turbine burning natural gas to produce electricity is utilized to heat water and produce steam for the steam turbine to produce additional electricity.") As a result, you need to build a lot more solar or wind capacity to generate the same amount of electricity. Frank explains:

For example, adjusting U.S. solar and wind capacity factors to take account of lack of reliability, we estimate that it would take 7.30 MW of solar capacity, costing roughly four times as much per MW to produce the same electrical output with the same degree of reliability as a baseload gas combined cycle plant. It requires an investment of approximately $29 million in utility-scale solar capacity to produce the same output with the same reliability as a $1 million investment in gas combined cycle. Reductions in the price of solar photovoltaic panels have reduced costs for utility-scale solar plants, but photovoltaic panels account for only a fraction of the cost of a solar plant. Thus such price reductions are unlikely to make solar power competitive with other electricity technologies without government subsidies.

Wind plants are far more economical in reducing emissions than solar plants, but much less economical than hydro, nuclear and gas combined cycle plants. Wind plants can operate at a capacity factor of 30 percent or more and cost about twice as much per MW to build as a gas combined cycle plant. Taking account of the lack of wind reliability, it takes an investment of approximately $10 million in wind plants to produce the same amount of electricity with the same reliability as a $1 million investment in gas combined cycle plants.

Thus, when you adjust for the ability of the power plant to produce the same amount of electricity, the benefits of fewer carbon emissions, less need for fuel, and benefits from replacing capacity look much lower for solar and wind. Notice that this conclusion holds true even though the carbon emissions and costs of new energy from the solar and wind facilities are estimated as zero.